Retail & Consumer Briefing 2021 - Highlights

How did retail and consumer businesses fare last year and what does that mean for retailers in 2021?

This year, our Retail and Consumer Briefing looked a little different. Being unable to meet in person, we took our briefing virtual, bringing together hundreds of leading UK retail and consumer goods businesses to look at how the sector fared in the face of an unprecedented global pandemic.

Reviewing a year like no other, our industry experts covered areas including the 2020 festive season trading results, the 2021 economic forecast, and key trends and implications for 2021.

You can now watch the Retail and Consumer Briefing on demand and see the slides from the event.

Despite a dramatic 2020, retail performed better than many expected, recovering quicker than most other industries. Not all categories did well, but online shopping boomed, consumer sentiment remained resilient and Christmas trading held up. It might have been another tough year for retail, with challenges still ahead for some, but there are signs of optimism for 2021.

Different industries will see different challenges this year, but there will be opportunities for all. Our Retail & Consumer Outlook Hub 2021 looks at the hot topics we think will shape retail this year and gives practical tips to help retailers succeed in the year ahead.

January 2021

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Of those retailers, investors and intermediaries polled at our briefing session, 69% said online/multichannel was top of their mind for 2021, whilst 41% cited customer insight and 35% mentioned supply chain/logistics.

Christmas trading exceeded expectations

Christmas trading held up well even though on average shoppers told us they spent £385, slightly less than last year. We saw families spend the most this year (more than last year) and younger people also spend more.

Early announced trading results implied an incredibly buoyant Christmas, with a median around 10%, however, this largely reflects a tendency to report if good news and not if bad. For example, compare these results with the BRC suggestion of total sales growth of 1.8% (versus 0.2% Dec 19). Overall, we saw grocery do well and a slight decline in non-food, with apparel and footwear and predominately store-based retailers struggling, but broadly positive considering the difficult current environment.

Online was undoubtedly the biggest winner this year. With lockdowns and tier restrictions closing non-essential physical stores, people moved online to meet their shopping needs, with online and click and collect becoming saviours for many retailers. In the run-up to Christmas, we saw 70% of presents bought online - significantly higher than the 55% in 2019 and 53% in 2018. Pureplay retailers saw huge growth while retailers with a poor - or nonexistent - online presence struggled this year, especially over the Christmas period.

Elsewhere, grocery was another big winner, driven largely by volume. December showed record spending on festive food and drink online and offline, driven by a more than doubling of absolute online grocery sales, with more slots and bigger baskets. It was also aided by the closure of hospitality, which usually accounts for a third of spend. Those that removed barriers to shopping, added capacity, balanced large stores and convenience, and encouraged bigger baskets saw the most success.

There was also strong demand for general merchandise, but only pureplay and multichannel retailers saw growth. With people spending more time in the home, they spent more money on DIY, furniture and home furnishings. Albeit, this trend to nesting was apparent before the pandemic as we downloaded and got food delivered more frequently!

In fashion, the winners were once again online pureplay retailers, and almost all fashion retailers that were affected by store closures had significantly positive online sales growth as they captured available demand. But, on the whole, most fashion retailers were affected by consumers having significantly fewer reasons to buy.

Health and beauty had a tough year, as consumers moved to a more natural look away from makeup, with multipurpose products also having an impact. Practical gifting and personalisation were popular again, with strong sales in areas such as games, small appliances, fitness equipment, food prep and hobbies and crafts.

Ultimately, those who got the basics right saw success: pricing and store standards, and seamless integration between online stores, delivery and fulfilment. While 2021 will be tough, retailers that continue to learn these lessons will have a chance of success.

What did we see in 2020?

It has been an exceptionally tough year for retail. We’ve seen high profile administrations and exits, significant job losses, and an overall UK retail market decline of around 4%, which itself masks a huge divergence between fast-growing winners and rapidly declining losers.

In a year that has seen what, where and how we shop change, and pre-existing trends accelerate, winning retailers have been at the forefront of this, whether through effective communication or offering the right products in the right channels and on credit. This is also likely to be the case in 2021, so retailers should make sure they’re clear on the 5Cs of retail: Channel, Convenience, Curation, Communication and Credit.

Elsewhere, the COVID-19 pandemic made it clear that retailers need to be where their customers are - whether that’s channel, communications or experience. It also re-emphasised the need to be agile and respond quickly to changing circumstances, not only to give your customers what they want but also to look after your people and recognise that they are the secret weapon. Finally, this year shed a light on the increasing importance of doing the right thing for your stakeholders and in the community.

What does that mean for 2021?

Despite forecast growth of 4.5% in 2021, the recovery is likely to be uneven across sectors, and the UK economy is not expected to recover to pre-pandemic levels until at least late 2022. Retail and wholesale are expected to rebound in 2021 after a sluggish Q1, but unemployment, business fragility and weak business investment will likely slightly dampen this recovery.

There will be immediate challenges: for non-essential retailers, preparing to reopen stores, managing staff, stock and stores, the ending of the furlough scheme and business rates holidays, amongst others. Add to this continued and prolonged volatility and uncertainty of consumer demand and it will continue to be a tough environment for retailers to operate in.

Retailers must act now to manage costs, people and store portfolios to avoid failure. Those that don’t react quick enough may fail as consumers increasingly gravitate to online.

As we head into the “Roaring Twenties” we’ll also see retailers rethinking the role of their stores.

In the short-term, we’ve already seen them change to meet immediate needs of consumers, for example, improving safety measures, bringing the store to the home (e.g. personal stylist video calls, etc), and offering alternative services. But as engagement with consumers changes, retailers will need to rethink the economics of stores as an integral part of the customer journey. They will look to create places that inspire, entertain and educate, while also fulfilling other operational and logistical needs, such as Click & Collect, service points and our home working requirements. We’ll see retailers strive to combine the best of digital and physical to produce a genuine, valuable omnichannel experience.

The importance of ‘doing the right thing’ will continue to be essential as we head into 2021 - whether that’s people, society or ESG and net-zero. Our consumer research shows that 41% of consumers considered sustainability and environmental factors in their Christmas shopping, and this was more prevalent in young consumers. Interest in this topic will only grow over the next few years, so retailers need to get on top of it.

We’re also expecting to see a shakeout of weaker retailers and polarisation between the local heroes and independent retailers that consumers want to keep supporting, and the larger national and international players that have economies of scale and competitive advantages in other areas. Retailers need to think about where to position themselves in this new environment, as well as how they can collaborate and build resilience for the future.

But they won’t need to do this all on their own. We’ll see retailers look to mergers and acquisitions or partnerships for the next stage of their development as the industry consolidates and organisations look for new capabilities, technologies and expertise to address changing customer demands.